SMF069

Rank: President [?]

Points: 40296 [?]

Votes: 57 Score: 3.6 [?]

Your Vote:

Did you know? You can earn activity points by filling your profile with information about yourself (what city you live in, your favorite team, blogs etc.)

OT: Will India Turn To Silver?

posted on Nov 02, 2013 08:31PM

India forced to take its eyes off gold

Published: Friday, 1 Nov 2013 | 4:22 PM ET

Gold demand typically peaks around now as Indian consumers load up on gold ahead of Diwali.

In response, gold shares on average have gained 2 percent one week ahead of the holiday. But we aren't seeing that big move in gold this year. Shares of the metal are down 1.4 percent this week, ahead of Diwali, which is being celebrated Nov. 3.

Analysts and gold gurus are predicting that demand in India will be weaker this year as consumers battle a slowing economy, rising inflation and a depreciating rupee.

"You can bet that with the current state of the economy, Indians will be buying less gold and looking for alternative gifting options this Diwali season," says Arvind Panagariya, professor of economics at Columbia University and India observer.

So if Indians aren't buying gold, what are they buying?

According to the local merchants in New Delhi and Mumbai—silver. It might not carry the same prestige and status, but it is cheaper and thus a good alternative. Silver shares trade at $22 an ounce, while gold shares are trading north of $1,300.

Merchants are seeing strong demand this season for silver coins, up about 10 percent to 15 percent year-over-year, according to BNP Paribas Securities in India.

BNP in India Executive Director Neil Nathwani said that with the economic slowdown, sales of dried fruits have surged.

"Some retailers of such products have seen sales grow by over 45 percent this year."

But silver and dried fruits won't be able to replace gold's important role in weddings, religious events and festivals.

That's why some experts say that regardless of economic conditions, India will always have a strong affinity for the yellow metal.

Somasundaram PR, managing director, India, for the World Gold Council, said that people there buy gold as a long-term investment to protect their wealth and that gold has social and emotional significance.

"Demand for gold, whether in the form of jewelry or investment [bars and coins], is predominantly retail—driven by millions of individuals across rural and urban India investing as part of their household savings ... not discretionary spending for consumption," PR said.